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Eyes Down For BT Group plc Results

BTShares in BT Group (LSE: BT-A) (NYSE: BT.US) haven’t had a great year — they’re flat over 12 months at 370p today, although that is still better than the FTSE 100‘s 6% fall.

But the company’s underlying fundamentals have been strong for the past five years, and the prospects for the next two years are looking good, too.

There’s a modest 4% rise in earnings per share (EPS) forecast for the year ending March 2015, and we’ll hear how that’s progressing on Thursday 30 October when the telecoms giant reports on the six months to the end of September.

Rising profits and cash

Revenue for the first quarter to 30 June was down slightly, with a 2% fall to £4,354m, but there were some very positive signs. Adjusted pre-tax profit rose by 7% to £638m with adjusted EPS up 10% to 6.5p (reported figures were up 22% and 27% respectively) and, crucially, the company recorded a normalised free cash flow of £122m.

Chief executive Gavin Patterson said at the time: “We have delivered growth in underlying revenue excluding transit and in profit before tax, and free cash flow was strong.

He also told us that the company’s fibre broadband had reached more than 20 million premises, reaching another 70,000 a week. The firm had three million customers signed up at the time. We also heard that “[t]he second season of BT Sport is about to start with a great line-up of content and it will continue to be free with BT Broadband“.

Mr Patterson was a little cagey about BT’s business oriented BT One Phone and other mobility plans, but told us to expect more on them later in the year — so that’s something we might hear about in next week’s interim report.

Full-year guidance

At its last full-year results time in March 2014, BT was suggesting EBITDA in the range of £6.2bn to £6.3bn for this year, up from £6.1bn. The company revealed a normalised free cash target of above £2.6bn (up from £2.45bn), and told us it hopes to lift its annual dividend by 10-15% and to buy back £300m worth of shares.

Those are challenging targets, and at Q1 time we were told that things were on course with full-year outlook unchanged — and I think we should be hearing at least the same again come interims next week.

Worth closer attention

Those dividend targets look especially attractive to me, particularly after we saw a 15% hike for the year just ended to 10.9p per share. The forecast yield this year, at 3.5%, is only a little higher than the FTSE average. But there’s 4% pencilled in for the following year, and BT’s target of 10-15% growth per year for the next two years makes the shares’ current forward P/E of 12.4 look modest, with a drop to 11.6% in 2016 forecast.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.